Fla. investor seeks to lead class against H&R Block

Steve Gonzalez Sep. 25, 2008, 9:11am

An investor in Cape Coral, Fla., says he wants to be the lead plaintiff in a class action case filed in Illinois against H&R Block.

Peter LaGrave wants to represent a class of all people who purchased and continue to hold auction-rate securities (ARS) offered for sale by H&R Block between Aug. 26, 2003, and Feb. 13, 2008.

He filed suit under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 on Sept. 24, in U.S. District Court for the Southern District of Illinois.

LaGrave alleges that H&R Block represented to investors that auction-rate securities were "cash equivalents" or better than money market funds, and that the securities were highly liquid and for short term investing.

He also claims H&R Block represented that ARS were suitable to those with $25,000 cash on hand and as little as one week to invest.

The problem, according to LaGrave, is that H&R Block failed to disclose to investors that auction-rate securities are actually complex, long term financial instruments with 30 year maturity dates or longer.

"Defendant knew, but failed to disclose that ARS were only liquid at the time of sale because Defendant were artificially supporting and manipulating the auction market to maintain the appearance of liquidity and stability," the complaint states. "Defendant knew, but failed to disclose that ARS would become illiquid as soon as Defendant stopped maintaining the auction market."

LaGrave claims H&R Block also knew that the statements issued or disseminated about ARS were materially false and misleading and knowingly and substantially participated in or acquiesced to the issuance of dissemination as primary violations of federal securities laws.

"Defendant knew and/or recklessly disregarded the falsity and misleading information that they caused to be disseminated to the investing public," the complaint states.

H&R Block 's fraudulent scheme could not have been perpetrated over a substantial period of time without the knowledge and complicity of senior executives, LaGrave said.

He claims that on Feb. 13, when H&R Block and all major broker-dealers refused to continue to support the auctions, 87 percent of auction-rate securities failed.

"As a result of the withdrawal of support by all of the major broker dealers, the market for ARS collapsed, leaving the holders of more than $300 billion in ARS with no means of liquidating investments Defendants offered and sold as a suitable alternative to money market funds and other short term cash management vehicles," the complaint states.

LaGrave claims H&R Block violated Sections 10 and 20 of the Securities Exchange Act by causing investors to purchase ARS at artificially inflated prices.

He also claims H&R Block employed devices, schemes and artifices to defraud, made untrue statements of material fact and engaged in a course of business that operated as a fraud and deceit in an effort to maintain inflated prices.

LaGrave claims had he and other members of the class known the truth about ARS they would not have purchased and continue to hold the instruments.

LaGrave seeks a judgment certifying the class with him as the class representative and an award of compensatory damages in an amount to be proven at trial.

He is represented by Joseph Danis and Corey Sullivan of Carey & Danis in St. Louis.

The case has been assigned to District Judge Michael Reagan.

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